Capex-capades

Consider what makes up our total capex tally.  Our 50-carrier coverage includes Wireline (RBOCs, Independent operating companies, CLECs, Cable MSOs, IXCs), and Wireless companies.  Of that, Wireline accounts for 66% and Wireless tallies 34%.  By sector, the RBOCs and Wireless carriers together account for 74% of the total, with AT&T's and Verizon's local, long distance and wireless operations accounting for the lion's share.  Cable MSOs, led by Comcast and Time Warner Cable, make up another 18%.  The remaining 8% consists of the Independent operating company, CLEC, and IXC segments with the IOCs accounting for over half of the total.

RBOCs (AT&T, Verizon, Qwest) spent $24.9 billion in 2008, down -4% YtY compared to 2007.  For 2009e, the RBOCs plan to invest $22.0 billion, down -12%, at a capital intensity of 19% versus 20% in 2008.  However, broadband initiatives such as AT&T's Project Lightspeed, Verizon's FiOS, and Qwest's FTTN, that deliver faster Internet speeds and more HD video channels will account for nearly 55% (up from 48% in 2008) of these companies' total capex, even as the top line slides.  RBOC capex will pick up again by 2010 as the telcos get their circuit-to-packet CO switching systems migrations underway in earnest.

Wireless capex was $21.4 billion in 2008, down -2% compared to 2008.  For 2009e, wireless carriers will invest $20.1 billion in their networks, down -6%, at a capital intensity of 14%.  There is still much work to be done to build out 3G in CDMA and GSM networks.  Meanwhile, Clearwire is constructing a brand new 4G network that will soon be followed by 4G deployments at other carriers.  So spending in wireless networks will continue apace for the next several years.

Cable MSOs competing with telcos for triple-play customers continue to upgrade and modernize their networks.  For 2008, cable MSO capex tallied $11.4 billion, down -6% from $12.0 billion 2008.  That figure is projected to decline another -8% to $10.5 billion in 2009e.  Still, the cable MSOs are in the early stage of DOCSIS 3.0 rollouts that provide up to 50 Mb/s speeds and more HDTV channels.  Don't be surprised if the big cable players roll out FTTH to supplant their HFC networks in selected markets over the next few years.

The collective capex among IOCs, CLECs, and IXCs is projected at $4.9 billion in 2009e down -4% from $5.1 billion in 2008.  Like their larger telco brethren, the capex drivers are broadband platforms from which to deliver IP-based services, both on a retail and wholesale basis.

In the end, expect more capex for broadband projects, FTTN/FTTP in wireline and 3G/4G in wireless.  The stage is set.  As the economy strengthens, capex levels in all sectors will rise once again.

John M. Celentano is President, Skyline Marketing Group, a Baltimore, MD-based telecom market analysis and strategy consulting firm, and publisher of the CapEx Report™.  He can be reached at john@skylinemarketing.com